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James P. Gaines, chief economist at the Real Estate Center at Texas A&M University, speaks wednesday, on the Texas economy and the housing outlook for 2019 during the Tyler Area Builders Association Government Officials Appreciation Luncheon at Willow Brook Country Club. Sarah A. Miller/Tyler Morning Telegraph photo

TYLER — Affordability is a key challenge for the state and national housing market right now because household incomes are not rising as quickly as home prices.

The challenge, and the growing size of the affordability gap, are bigger in Texas than much of the rest of the nation, said James P. Gaines, chief economist of the Texas A&M Real Estate Center.

“Our incomes are lower in Texas than the national levels,” he told area officials and members of the Tyler Area Builders Association. “House prices relative to those incomes is getting higher, and the further that spread gets, the bigger this separation between the red line and the blue line, then the more and more (important) the affordability issue becomes.”

Gaines pointed to a chart showing the rise in median household income and the rise in home prices since 1989, and a steep rise in home prices in the past few years relative to household incomes.

“That’s the issue of affordability, and affordability now is one of our more critical issues — probably in the top four or five issues that the state really faces is housing affordability,” he said.

The price of a home starts with the price of the empty lot, and he said a home usually sells for five to six times what the lot costs. That means a $50,000 lot could yield a $300,000 home, he said.

“So can you get a $50,000 lot?” Gaines asked rhetorically. “That’s the problem.”

He said it might be possible for builders to find less expensive lots outside of city limits in unincorporated areas. While cities usually charge for a permit, counties will let construction go forward without that cost.

At a personal level, he said homes are affordable at prices between 3.2 and 3.8 times a household’s income, and unaffordable when they get upward of 4 times a household’s income. In the years leading up to the Great Recession, people were being sold unaffordable homes — which many lost when they couldn’t make payments.

“People in some communities were paying as much as 15 times their income to buy a house,” Gaines said, recalling days lenders were making questionable loans. “It doesn’t work. I mean, it doesn’t take a genius to figure that one out. I don’t care how exotic, erotic or anything else the financing is. That doesn’t work.”

Gaines said the Real Estate Center is projecting a 5% downturn in single-family homebuilding in part because of the lack of availability of affordable retail lots. He said data from building permits show this trend is coming true.